London open: Stocks rally ahead of BoE policy announcement
London stocks racked up healthy gains in early trade on Thursday following a strong finish on Wall Street, as investors eyed the latest policy announcement from the Bank of England.
At 0930 BST, the FTSE 100 was up 1.3% at 7,586.82.
Victoria Scholar, head of Investment at Interactive Investor, said: “European markets are trading sharply higher, buoyed by positive momentum last night that lifted US stocks after the Fed raised rates by 50 basis points for the first time since 2000 and indicated that there was more hawkishness to come, reassuring the market that the central bank is serious about tackling inflation.
“The Bank of England is expected to carry out another quarter point interest rate rise today, lifting its Bank Rate from 0.75% to 1%, the highest level since 2009. There is an unlikely outside chance that the central bank follows the Fed last night with a more aggressive 50 basis point hike. However, it is more likely that the vote split will become less one sided with the potential for certain committee members to turn more cautious and dovish in light of the increasingly gloomy economic outlook. At the last meeting Deputy Governor Jon Cunliffe was the sole dovish dissenter.
“It will also be interesting to see whether after today’s decision, there will be a shift in market expectations for where the bank rate will finish the year. At the moment the market is pricing in a series of further rate hikes to take the bank rate to around 2.25-2.5% by year-end, sharply at odds with the expectations of more prudent economists who are forecasting the bank rate to reach just 1.5% by early 2023.”
In equity markets, paper and packaging group Mondi surged to the top of the FTSE 100 after reporting a strong first-quarter performance late on Wednesday and announcing plans to sell its Russian assets.
Shell gushed higher after it posted record first-quarter profits driven by surging oil and gas prices which have been inflated by the Ukraine war.
Endeavour Mining pushed higher as it reported a strong start to the year and said both production and all-in sustaining costs were well positioned to meet full-year guidance.
Melrose advanced after a well-received trading statement and PureTech Health was up after announcing the launch of a $50m share buyback programme.
Gambling software development company Playtech rallied as it said adjusted EBITDA for the first three months of the year topped €100m and pointed to some progress in takeover talks with investor group TTB.
Housebuilder Barratt Developments also gained after saying it was on track to meet its expectations as it highlighted strong demand.
On the downside, Hikma Pharmaceuticals tumbled after it cut guidance for its generics business, citing a delay to the launch of a narcolepsy treatment.
Virgin Money, Hiscox and Domino’s all lost ground after updates.
Top 10 FTSE 100 Risers
Top 10 FTSE 100 Fallers
Europe open: Shares rally as Fed rules out aggressive tightening; Eyes on BoE
European stocks rallied at the open on Thursday after the US Federal Reserve raised interest rates but ruled out more aggressive moves in the future.
The pan-European STOXX 600 index rose 1.27%, with investor sentiment also helped by another dump of corporate earnings and updates.
In the US, Wall Street closed higher after the Fed raised interest rates by a 50 basis points, but the central bank’s Chairman Jerome Powell scotched suggestions of a 75 basis point hike in a coming meeting.
Investors were now eyeing the Bank of England for a similar move later in the day as Britons struggled with soaring prices.
In equity news, Airbus shares rose after the aircraft maker reported higher-than-expected first-quarter profit and firmed up record plans for a 50% hike in narrowbody jet output.
Oil giant Shell gained after reporting a record first-quarter profit of $9.13bn, boosted by higher oil and gas prices which have been inflated due to the Ukraine war. The company also pledged more returns to shareholders.
BMW was higher as it posted a rise in quarterly profit, lifted by a reevaluation of its Chinese joint venture stake and strong pricing.
Shares in Hikma Pharmaceuticals fell as the company cut annual sales and margin forecasts for its second-biggest unit, due to possible delays in the launch of a generic version of a sleep disorder treatment.
US close: Dow adds over 900 points as Fed hikes rates
Wall Street stocks closed sharply higher on Wednesday, after the Federal Reserve confirmed the first 50-basis point rate hike in more than two decades.
At the close the Dow Jones Industrial Average was up 2.81% at 34,061.06, as the S&P 500 added 2.99% to 4,300.17 and the Nasdaq Composite was 3.19% firmer at 12,964.86.
The Dow closed 932.27 points higher, extending gains recorded in the previous session.
“No surprises in the Fed’s decision, but this doesn’t mean that no bazooka was fired by them,” quipped AvaTrade chief market analyst Naeem Aslam.
“The Fed has increased the interest rate by 50 basis points but the fact that this was already anticipated by the markets has calmed some nerves.
“The dollar index has lost steam on the back of the Fed’s decision and this has helped the gold price which has been oversold as some were thinking that the Fed may increase the interest rate by 75 basis points.
“We also see a relief rally for the US equity markets while traders are still fully digesting the message from the Fed.”
Indeed, the Federal Reserve followed through on its recently accelerated timeline for tightening policy late in the session, but indicated that even faster rate hikes were unlikely.
As had been expected, the Federal Open Market Committee raised its target range for the Fed funds rate by 50 basis points to between 0.75% and 1.0%.
Policymakers also said that from 1 June, the central bank would begin running off debt instruments from its $8.9trn balance sheet, at a monthly cadence of $47.5bn.
“Inflation is much too high and we understand the hardship it is causing,” said Fed chair Jerome Powell at his post-meeting press conference.
“We are moving expeditiously to bring it back down.”
Powell added that 75 basis point hikes were not being considered, although there was “a broad sense on the committee that additional 50-basis point increases should be on the table for the next couple of meetings.”
Wednesday’s rate hike was the largest single move since May 2000, when the Federal Reserve took its funds rate target to 6.5%.
“All central banks face a dilemma right now over how much relative weight to give to inflation or growth concerns, but it seems clear that the Fed is much more focused on the inflation risks,” said analysts at Lloyds Bank after the Fed’s announcement.
On the economic front, US mortgage applications increased by 2.50% week-on-week in the seven days ended 29 April, according to the Mortgage Bankers Association of America.
Elsewhere, private businesses hired 247,000 workers in April according to ADP – the smallest figure since April 2020 and well below forecasts of 395,000.
“In April, the labour market recovery showed signs of slowing as the economy approaches full employment,” said ADP chief economist Nela Richardson.
“While hiring demand remains strong, labour supply shortages caused job gains to soften for both goods producers and services providers.
“As the labor market tightens, small companies, with fewer than 50 employees, struggle with competition for wages amid increased costs.”
Still on data, the US trade deficit widened sharply to a record high of $109.8bn in March, according to the Bureau of Economic Analysis, as a broad-based rise in prices brought about a 10.3% surge in imports, which also topped a fresh high of $351.5bn.
The S&P Global composite PMI for April, meanwhile, was revised higher to a print of 55.6, up from a preliminary reading of 54.7, pointing to a sharp increase in services activity.
Finally, last month’s non-manufacturing PMI from the Institute for Supply Management fell to 57.1 in April, down 58.3 in March and well below estimates for a reading of 58.5, primarily due to a restricted labour pool and a slowdown in new orders growth.
In equities, retail pharmacy giant CVS Health jumped 4.78% after it raised full-year forecasts following expectations-busting first quarter earnings.
Airbnb added 7.71% after it beat expectations in its latest set of numbers, and also topped 100 million nights booked in a single quarter for the first time in its history.
On the downside, Uber Technologies skidded 4.65% after the minicab and takeaway delivery specialist posted a wider-than-expected quarterly loss.
Domestic ride-hailing competitor Lyft tumbled 29.91%, meanwhile, after its guidance on profit and sales disappointed the market, even after its first quarter came in better than anticipated.
Thursday newspaper round-up: Virgin Atlantic, workplace lawsuits, Just Eat
The UK’s biggest electricity distribution business has agreed to pay £14.9m after its support for vulnerable customers during power cuts was deemed “totally unacceptable”. The energy regulator said National Grid’s Western Power Distribution (WPD) did not provide proper support to 1.7 million customers during the outages. An Ofgem investigation, launched in 2020, found that WPD had failed customers in a number of areas including not carrying out criminal record checks for all staff visiting customers’ homes. – Guardian
A Virgin Atlantic flight to New York was forced to return to Heathrow after bosses discovered that one of its pilots had not completed their training. Virgin Atlantic, majority-owned by billionaire businessman Sir Richard Branson, apologised for the disruption to passengers and blamed a “rostering issue”. It said internal training protocols, rather than UK aviation or safety regulations, had been breached. – Telegraph
Workplace lawsuits including the word “banter” have shot up by 45pc in a year as former colleagues clash over what they deem to be acceptable office humour. The number of employment tribunal claims relating to “banter” as a justification for alleged discrimination rose from 67 in 2020 to a record 97 in 2021, according to research by law firm GQ Littler. – Telegraph
The chairman of Just Eat Takeaway resigned before the food delivery group’s annual meeting yesterday after acknowledging shareholders’ concerns at the way the company has been run. Adriaan Nuhn’s abrupt exit came as the supervisory board withdrew the vote for the re-election to the management board of Jörg Gerbig, 41, the company’s chief operating officer, amid a complaint about his personal conduct. – The Times
Construction companies are struggling to keep up with growing workloads amid the surge in materials costs and a shortage of skilled labour. Almost every contractor, builder and developer surveyed in the latest Global Construction Monitor from the Royal Institution of Chartered Surveyors said that availability of materials was a “major constraint to current activity”. – The Times
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